Enron Scandal Case Study Analysis: Why Enron Failed
Company ethics is associated with values and morals that company finds suitable or desirable. Through the ethical theories, it stimulates principles that guides in making decisions about what is right or wrong based on the given situation. With reference to leadership, ethical leadership demonstrated what leaders should do and who should be the leaders. The way that leaders make decisions are reinforced by their morals which means it can be clearly seen in the decisions they made and reactions they made at given conditions. Enron Scandal company case study depicts about the unethical leadership practices which makes a giant reason for collapsed of the whole business. It will be further discussed through the analysis in relation to ethical egoism, utilitarianism and altruism. In the history of US, decline of Enron is considered as a remarkable milestone in business era. Most of the examiners have investigates on this matter and found key reasons for the decline.
As per the Peppas, 2003 he states dealing practices and unethical conducts are the major cause for the collapse of the business. SEGAL (2019) states that behavior of company executives, company culture established, company structure and chaotic motivational programs made the causes for deterioration of the business further. Vinten, 2002 explains evidently that two leaders namely Kenneth Lay and Jeffrey Skilling are the main responsible leaders who make the company to the disaster by leaving thousands of employees as victims without any retirements. Jenkins, 2003 accepted that and it comments in the article as these leaders should answerable for the downfall of Enron owing to their unethical behaviors and decisions. Northouse, 2016 states that in Enron, leaders use their leadership and power for personal ends. Further Lipman Blumen argues that disparaging leaders always bring the disaster to the company by leaving its followers worse off and violating their human rights too. The executive of Enron show such destructive behavior by showing destructive individual features such as greedy ambition, lack of truthfulness, being irresponsible, disrespect to the actions and overconfidence on their opinions. When it comes to moral conduct, there are different ways of making decisions namely ethical egoism, utilitarianism and altruism as per to Northouse, 2016. He utters ethical egoism is a view that employee perceive their own self-interest and no one is promoting anyone else’s preferences. Bondarenko (2019) states the same thing that Enron employees are having such moral who highly consider about own self-interests while giving less attention for others benefits.
Furthermore, Kenneth Lay followed charismatic leadership who inspiring its employees to follow their leadership. Even though the company has got code of conduct, leaders did not follow them and did not act as role models to its employees to follow as per with Prentice, 2003. Lay says in his speech that, we do not need to slave to rules. From that, it clearly depicts the attitudes towards the company rules and policies. Those behaviors and opinions greatly impact on creating bad culture within Enron. Gini, 2004 utters company culture always tied up with the ethical integrity and leadership quality of any company. As long as there is no ethical leadership in any company, ethical behavior cannot beexpected. Same thing happened at Enron which made a reason for collapsed and creating bad company culture. Employees at the lower level showed unethical behavior by being egoism in order to meet antagonistic compensation goals. They created internal competition within the company who compete against the cheating and able to do anything to overcome temporary interruptions. This type of culture was created under the leadership of Lay and Skilling. Furthermore, achieving short term financial goals as their main aim by putting company and employees into hot water is widely seen at Enron under the leadership of Lay and Skilling. Apart from that, they engaged in financial modifications to show higher company performance. But at the end, this bubble was burst at 2001. And also, they got higher salary and benefits during the difficult periods of Enron by playing havoc with performance targets.
It is evident from clear that they are truly egoism. The motivational program structure which was available at Enron was not productive as well. Wienclaw, 2008 utters that manager should have a proper understanding on what motives employees in order to accomplish company objectives. In here, these leaders have distorted it to meet company’s supercilious goals. They recruited and promoted employees by providing higher incentives for taking risk and profit earning and asking to focus on profit making more and more without considering the ways of earning. This guidance laid down and raised the unethical behaviors among employees and internal big competition. This all happened as they only concern about their own intention not the others. Further, they created horizontal organization structure which prevents the information sharing in the business operations. They did not like to show the transparency of the business processes. That is why they created this type of company structure and midlevel employees was lacked in formation to communicate to below executives as cited by Werther, 2003. Owing to that, most of the employees did not have any idea on what is happening inside the company. Moreover, Behr, 2004 states that Lay was followed extravagant lifestyle during his leadership. When he got to know that business share is declining, he encouraged its employees and investors to sell the shares of Enron. In the same time, he got the maximum benefits from company facilities for his personal usage. Same things were done by Skilling as well. And also, Skilling is the main person who made wrong financial reports and adopted new accounting concept as “mark to market” at Enron as cited by. This was so helpful in disseminating in creating wrong image about the company performance. And also he manipulated electricity market and dishonest energy shortage with an intention of increasing of energy prices. He did all these in the aim of providing more benefits to whole. Utilitarianism refers as the greatest good for greatest people. The decision that made by leaders would be greatly impacted on employees. It can happen in either ways. Sometimes the wrong decision made by a leader would affect to whole community irrespective of levels. That is why, most of the employees had to stay at home without any retirement schemes after the fall down of Enron. It is evident from fact that, these two leaders highly concerned about their personal benefits mainly and they were the major responsible parties who brought the company to the decline stage. The vice president of Enron, Sherron Watkins is the whistleblower who obliged for bringing disaster to the company. She made the abnormalities in financial reports and fraud to government authorities by misleading and putting her career and its company employees into risk. Their sole aim is to concern about others rather thinking about own best interest. Altruism refers as an approach of moral that highly concern about the others while giving low concern for self-interest as cited by Northouse, 2016. Many companies are struggling to have ethical leadership within the company as clear direction and guidance is required to obtain sustainable competitive advantage.
George, 2007, states about the leadership qualities that leaders should have an ethical leadership. He articulates, building supporting teams, balancing intrinsic and extrinsic motivational programs, giving self-awareness, understanding own passion and intention of leadership and so on as the leadership qualities to have an ethical leadership in the company. But at Enron, we would not able to see such qualities of any leader. Collins 2009, points put several factors that would reinforce the ethical leadership in a company. He declares that designing proper code of conduct, hiring ethical employees for recruitment panel, developing ethical decision making framework, empowering ethical employees and so on as stimulating factors for having such ethical culture on the organization. For decline of the Enron, main reason was the unsuccessful leadership philosophy. They just engaged in policy in making money for themselves ignoring the responses and opinions of others. The code of conduct which is prevailed at Enron was limited as a paper document which is not actionable. If that prevails, Enron might be in the higher place in the US market. Many experts argue that, code of conduct is not the only thing for having ethical behavior in the company. Solomon, 1992 argues that in order to have ethical leadership, leaders should showcase ethical qualities such as honesty, fairness and so on. Technical capability is not solely important factor for having such ethical leadership as further emphasized by Solomon, 1992. Both leaders portrait a picture of being charismatic leaders to outside but actually not. Different leading styles have been greatly impacted on Enron in different ways. Leaders would able to change the history of Enron, by installing different systems to caught to fraudulent activities, bringing code of conduct to the company, recruiting will be good rather than promoting as it happened in different wrong ways and designing corporate culture prior to make strategic decisions and so on.
Generally, if there is comprehensive growth for everyone in the company, Enron would be able to grab the higher market share in US. To sum up, leaders are the one who can influence or influenced by the followers. They did not yes people and they challenge the status quo and bring new things cooperatively. Leadership is composed of values, norms such as respect, fairness, integrity and so on. Good leader can be identified with his or her values he is showing out. That means, when we are influencing we need to have a set of values in ourselves. Enron is a good case study for highlight the importance of having ethical leadership in the company today. Through this, it has been illustrated the different moral values in leading styles of Lay and Skilling. They have compromised their own values in support of accomplishing benefits for themselves. As they ran a rat race towards earning money for themselves, they did not listen to others and their opinions. Throughout the analysis, I have emphasized the arguments made by several experts and opinions of researchers in relation to the scenarios. In due course, we can find Enron case study as a brilliant worth example for accentuating significant of having ethical leadership in an organization.
- Bondarenko, P. , 2019. Enron scandal. [Online] Available at: https://www. britannica. com/event/Enron-scandal [Accessed 07 November 2019].
- SEGAL, T. , 2019. Enron Scandal: The Fall of a Wall Street Darling. [Online] Available at: https://www. investopedia. com/updates/enron-scandal-summary/[Accessed 07 November 2019].
- THOMAS, W. , 2002. The Rise and Fall of Enron. [Online] Available at: https://www. journalofaccountancy. com/issues/2002/apr/theriseandfallofenron. html [Accessed 07 November 2019].